Oil Weekly Outlook

[Samirofi]

Oil Outlook for April 14-18

Oil prices (WTI and Brent) bounced back last week. WTI and Brent oil rose by 2.6% and 0.6%, respectively. As a result, the difference of Brent oil over WTI narrowed again: The premium ranged between $3.6 and $5.4. Last week, the EIA’s weekly report presented a gain in oil’s stockpiles of 5.2 million barrels. OPEC and IEA showed a drop in oil production worldwide. Will oil continue to rise? This week, several reports may affect oil prices. These items include: U.S PPI, China’s new loans, U.S industrial production, Philly Fed index, China’s GDP, and EIA oil weekly report.


Here is a weekly outlook for the oil market for April 14^th – 18^th:


Oil Prices – April Overview


During the previous week, crude oil price (WTI) increased by 2.6% and reached by Friday $103.74/b; moreover, Brent oil edged up by 0.6% to $107.33/b;


In the chart below are the daily changes in WTI and Brent oil prices during the past several months (prices are normalized to December 31^st, 2013). As you can see, Brent and WTI oil prices changed direction and rose in the past several days.



Premium of Brent over WTI – April


The gap between Brent and WTI oilnarrowed last week as it ranged between $3.59 and $5.38 per barrel. During the week, the premium dropped by $1.99 per barrel.



Oil Stockpiles, Demand and Supply


The oil stockpiles rose by 5.2 MB and reached 1,738.2 million barrels. The linear correlation between the shifts in stockpiles has remained stable at -0.211: this correlation implies that oil price, assuming all things equal, may change direction and fall next week. But in order to better examine the fundamentals let’s consider the changes in supply and demand:


Supply: Oil imports remained unchanged last week. Furthermore, oil production inched up by 0.1%; the total supply increased by 0.1%;


Demand: Refinery inputs rose by 0.6% last week. In total, the demand remained below the supply, but the difference between supply and demand narrowed. This recent development may keep pushing up oil prices as the U.S oil market has become slightly tighter than it was a week back. After all, the linear correlation between the weekly price of oil lagged by on period and the changes in the gap between supply and demand is mid-strong and negative at -0.296.


The chart below shows the changes in the difference between supply and demand and the price of oil.



If U.S oil market continues to tighten, this could pressure up oil price.


The next weekly report will be published on Wednesday, April 16^th and will refer to the week ending on April 11^th.


OPEC’s production Tumbled Down last month


The OPEC report was released last week and showed a sharp fall in OPEC’s oil production in March: OPEC’s production during March reached 29.610 million bbl/d – a 626 thousand bbl/d drop. This fall in production is mostly due to Iraq’s sharp fall in production from 3,481 thousand bbl/d to 3,193 thousand bbl/d – a 288 thousand bbl/d drop. Moreover, Libya’s output dropped to 243 thousand bbl/d – a fifth of its capacity. The production of Saudi Arabia also declined by 80.5 thousand bbl/d during March. If OPEC’s oil production further decreases, this could continue to pull up oil prices mainly Brent oil.


IEA’s Update as of February 2014


According to the latest report, OECD’s industry oil inventories inched down by 6.2 mb during February. Global oil supplies plunged by 1.2 mb /d (month-over-month) to 91.75 mb/d during March.


Oil Related News for the Week


Here are several news items that could influence oil investors:


Monday –U.S. Retail Sales Report: This monthly update refers to March; in the last report regarding February, retail sales slightly rose by 0.3% (month-over-month); core retail also increased by 0.3%; this report also shows the changes in U.S’s gasoline retail sales, which could provide some input regarding the developments in demand for gasoline;


Tuesday –China First Quarter GDP 2014: In the fourth quarter of 2013, China grew by 7.7% in annual terms; China’s economy grew by 7.8% in the third quarter of 2013. The current expectations are that the first quarter of 2013 grew in annul terms by a similar pace to the previous quarter; if the growth rate further increases, this may positively affect oil prices;


Tuesday –China First Quarter GDP 2014: In the fourth quarter of 2013, China grew by 7.7% in annual terms; China’s economy grew by 7.8% in the third quarter of 2013. The current expectations are that the first quarter of 2013 grew in annul terms by a similar pace to the previous quarter; if the growth rate further increases, this may positively affect commodities prices;


Oil Forecast and Breakdown


From the supply side, the recent stable imports and modest gain in production weren’t enough to cool down the oil market. The supply only inched up. From the demand side, refinery inputs increased. Conversely, the storage moderately rose. In total, even though the total supply was still higher than demand, the difference between the two narrowed. This could suggest the oil market has tightened. Looking forward, the upcoming reports revolving the U.S and China could offer some additional information regarding the progress of these two top oil consumers worldwide. The gap between Brent and WTI ranged between $3 and $5 and is likely to pick up to the $5-$7 range.


The bottom line, on a weekly scale, oil might keep rising.

[Samirofi]

Oil Outlook for June 23-27

The prices of crude oil continued their upward trend during last week as both WTI and Brent rose by 0.3% and 1.2%, respectively. The gap of Brent oil over WTI slightly widened again by the end of the week; the premium ranged between $6.32 and $8.63. Will oil prices continue to rally? This week, several reports and events may affect the oil market including U.S core durable goods, China’s manufacturing PMI, U.S GDP for Q1, and EIA oil weekly report.


Here is a weekly outlook for the oil market for June 23^rd –27^th:


Oil Prices –June


During the previous week, crude oil price (WTI) slightly increased by 0.3% and reached by Friday $107.26/b; moreover, Brent oil rose by 1.2% to reach $114.81/b;


In the chart below are the daily changes in WTI and Brent oil prices during the past several weeks (prices are normalized to April 30^th, 2014).



Premium of Brent over WTI – June


The difference between Brent and WTI oilwas in the range between $6.32 and $8.63 per barrel. During the week, the premium rose by $1.05 per barrel.



Oil Stockpiles, Demand and Supply


The oil stockpiles increased again by 6.0 MB and reached 1,804.78 million barrels. The linear correlation between the changes in stockpiles has fallen to -0.165: this correlation suggests that oil price was less related to the changes in stockpiles. Let’s turn to the shifts in supply/demand:


Supply: Oil imports rose by 2.7% during last week. Moreover, oil production edged up again by 0.1%; the total supply rose by 1.3%;


Demand: Refinery inputs slipped by 0.9% last week. In total, the demand was below the supply. This recent development may start to bring down oil prices as the U.S oil market loosened. After all, the linear correlation between the weekly price of oil lagged by on period and the shifts in the gap between supply and demand is mid-strong and negative at -0.248.


The chart below shows the developments in the difference between supply and demand and the price of oil.



The next weekly report will be released on Wednesday, June 26^th and will refer to the week ending on June 20^th.


Oil Related News for the Week


Here are several news items that could affect the direction of oil prices:



Monday – China Manufacturing PMI (flash): HSBC will publish its flash manufacturing PMI survey for June. Last month’s report regarding May 2014, the Manufacturing PMI increased again to 49.7 – i.e. China’s manufacturing sectors is scaling down but at a slower pace. If in the upcoming report the PMI index picks up again, it means China’s manufacturing sector is improving;


Wednesday – U.S Core Durable Goods: This monthly report regarding May will indicate the developments in U.S demand for commodities including oil and gas. As of April 2014, new orders of manufactured durable goods increased to $239.9 billion – a 0.6% rise compared to March; if this report shows additional growth in new orders, then it could rally not only the USD but also commodities;


Wednesday – Final U.S GDP 1Q 2014 Estimate: This will be the last estimate of U.S’s first quarter 2014 real GDP growth. In the last estimate the U.S GDP contacted by 1% in the first quarter (annual pace). If the growth rate were to be revised down again, this might adversely affect not only the US dollar but also commodities prices;


Oil Outlook and Breakdown


From the supply side, the sharp increase in imports and modest gain in production are likely to keep loosening up the oil market. Further, from the demand side, refinery inputs slipped again. In total, the demand was below the supply for the first time since early May. But the ongoing tensions in Iraq could keep oil prices elevated for the short term. The difference between Brent and WTI remained in range between $6 and $8 and is likely to slightly widen to the $7 and $9 range.


The bottom line, on a weekly scale, oil is likely to slowly increase, unless tensions in Iraq will subside.

[Samirofi]

Oil Outlook for June 30- July 4

The oil market cooled down for the first time in the past several weeks as WTI and Brent declined by 1.4% and 1.3%, respectively. The difference of Brent oil over WTI remained steady last week; the premium ranged between $7.37 and $8.43. Will oil prices keep coming down? This week, several reports may impact the oil market including U.S NF payroll report, U.S and China’s manufacturing PMI, and EIA oil weekly report.


Here is a weekly outlook for the oil market for June 30^th – July 4^th:


Oil Prices –July


During last week, crude oil price (WTI) decreased by 1.4% and reached by Friday $105.74/b; moreover, Brent oil fell by 1.3% to reach $113.3/b;


In the chart below are the daily changes in WTI and Brent oil prices during the past several weeks (prices are normalized to April 30^th, 2014).



Premium of Brent over WTI – July


The gap between Brent and WTI oilwas in the range between $7.37 and $8.43 per barrel. During the week, the premium inched up by $0.01 per barrel.



Oil Stockpiles, Demand and Supply


The oil stockpiles rose again by 5.1 MB and reached 1,809.9 million barrels. The linear correlation between the changes in stockpiles has declined again to -0.15: this correlation suggests that oil price was less related to the shifts in stockpiles. Let’s turn to the changes in supply/demand:


Supply: Oil imports fell by 1.6% during last week. Moreover, oil production edged down by 0.1%; the total supply declined by 0.8%;


Demand: Refinery inputs slipped by 0.3% last week. In total, the demand was slightly above the supply. This recent development may pull back up oil prices as the U.S oil market slightly tightened. After all, the linear correlation between the weekly price of oil lagged by on period and the changes in the gap between supply and demand is mid-strong and negative at -0.253.


The chart below presents the developments in the difference between supply and demand and the price of oil.



The next weekly report will be published on Wednesday, July 2^nd and will refer to the week ending on June 27^th.


Oil Related News for the Week


Here are several news items that could affect the direction of oil prices:


Tuesday – U.S Manufacturing PMI: This report will pertain to June 2014. Back in May, the index rose to 55.4; this means the manufacturing is expanding at a faster rate;


Thursday – U.S. Non-Farm Payroll Report: In the last employment report referring to May 2014, the number of non-farm payroll employment expanded by 217K; the U.S unemployment rate remained unchanged at 6.3%. In the four reports, the average growth in employment was over 200K;


Oil Outlook and Breakdown


From the supply side, the drop in imports and modest fall in production are likely to tighten the oil market. Conversely, from the demand side, refinery inputs also fell. But the demand was slightly above the supply. The difference between Brent and WTI remained in range between $6 and $8 and is likely to remain at this range.


The bottom line, on a weekly scale, the oil market is likely to keep cooling down, unless tensions in Iraq will intensify.

[Samirofi]

Oil Outlook for July 14-18

The oil market cooled down again during the previous week as the WTI and Brent dropped by 3.1% and 3.9%, respectively. As a result, the premium of Brent oil over WTI narrowed again; the premium ranged between $6.71 and $5.83. What is next for oil? This week, the following reports will be released: U.S retail sales, China’s GDP for the second quarter, Philly fed survey and the EIA’s oil weekly update.


Here is a weekly outlook for the oil market for July 14^th – July 18^th:


Oil Prices –July


During last week, crude oil price (WTI) tumbled down by 3.1% and reached by Friday $100.83/b; further, Brent oil also plunged by 3.9% to reach $106.66/b;


In the chart below are the daily changes in WTI and Brent oil prices during the past few weeks (prices are normalized to April 30^th, 2014).



Premium of Brent over WTI – July


The gap between Brent and WTI oilwas in the range between $5.54 and $6.71 per barrel. During the week, the premium narrowed by $1.11 per barrel.



Oil Stockpiles, Demand and Supply


The oil stockpiles changed direction and rose by 4.5 MB and reached 1,814.081 million barrels. The linear correlation between the changes in stockpiles has declined again to -0.154: this correlation suggests that oil price was less related to the shifts in stockpiles. Let’s turn to the changes in supply/demand:


Supply: Oil imports increased by 0.5% during last week. Further, oil production inched up by 0.2%; the total supply rose by 0.3%;


Demand: Refinery inputs also increased by 1.1% last week. In total, the demand was above the supply. This recent development may bring back up the price of oil. The linear correlation between the weekly price of oil lagged by on period and the changes in the gap between supply and demand is mid-strong and negative at -0.271.


The chart below shows the developments in the difference between supply and demand and the price of oil.



The next weekly report will be published on Wednesday, July 16^th and will refer to the week ending on July 11^th


IEA Monthly Report


According to the last monthly update, in June, the global oil supply remained nearly unchanged to reach 92.6 million bbl/d in June, mainly due to little shift in the production of OPEC countries. The global demand outlook is expected to rise to 92.7 million bbl/d during 2014 – slightly lower than the previous estimate. If the demand forecast keeps coming down, this could drag down oil prices.


OPEC’s production slightly rose in April


According to the recent OPEC Report, OPEC’s oil production modestly declined by 79.3 thousand bbl/d to reach 29,701 thousand bbl/d in June. Most of the drop comes from slightly lower production in Iraqi. As long as the total OPEC supply remains stable, the price of oil is likely to slowly come down.


Oil Related News for the Week


Here are several news items that could affect the direction of oil prices:


Tuesday –China Second Quarter GDP 2014: In the first quarter of 2014, China grew by 7.4% in annual terms – lower than in the previous quarter;


Tuesday –U.S. Retail Sales Report: In the last report regarding May, retail sales rose by 0.3% (month-over-month); core retail edged up by 0.1%; this report also shows the changes in U.S’s gasoline retail sales, which could provide some insight regarding the developments in demand for gasoline;


Thursday – Philly Fed Manufacturing Index: This monthly survey projects the growth of the US manufacturing sectors. In the last survey regarding June, the growth rate slightly rose from +15.4 in May to +17.8 in June. If the index further rallies, it may positively affect not only U.S Dollar but also U.S equity markets and commodities (the recent Philly Fed review);


Oil Outlook and Breakdown


The recent reports by the IEA and OPEC showed little change in OPEC’s output and the fighting in Iraq didn’t have an adverse impact on oil production in this country. These findings suggest the rally of oil prices may have been unfounded and thus oil prices are likely to further come down in the near term. The premium of Brent over WTI contracted to range between $5 and $6 and is likely to come further down to around $4 and $5. Unless the economic reports from China and U.S exceed expectations, oil prices are likely to keep coming down.

[Samirofi]

Oil Outlook for August 4-8

The oil market cooled down in the past week despite the decision of Europe and U.S to impose economic sanctions on Russia, which could bring down the oil exports from Russia to the west. Currently, the sanctions aren’t expected to impede Russia’s oil production only down the line. By the end of last week, WTI and Brent fell by 4.1% and 3.3%, respectively. As a result, the premium of Brent oil over WTI expanded; the premium ranged between $5.9 and $7.85. This week, the following reports will be released: U.S factory orders, EU retail sales, and the EIA’s oil weekly report.


Here is a weekly outlook for the oil market for August 4^th-8^th:


Oil Prices –August


During the previous week, crude oil price (WTI) declined by 4.1% and reached by Friday $97.88/b; moreover, Brent oil also decreased by 3.3% to reach $104.84/b;


In the chart below are the daily shifts in WTI and Brent oil prices during July (prices are normalized to May 30^th, 2014).



Premium of Brent over WTI – August


The spread between Brent and WTI oilwas in the range between $5.9 and $7.85 per barrel. During the week, the premium grew by $1.13 per barrel.



Oil Stockpiles, Demand and Supply


The oil stockpiles declined by 0.5 MB and reached 1,820 million barrels. The linear correlation between the changes in stockpiles has declined again to -0.155. Let’s turn to the recent developments in supply/demand:


Supply: Oil imports increased by 1.6% during last week. Moreover, oil production remained unchanged; the total supply rose by 0.8%;


Demand: Refinery inputs also rose by 0.5% last week. In total, the demand grew slower than the supply. This recent development may keep drag down oil prices. The linear correlation between the weekly price of oil lagged by on period and the shifts in the gap between supply and demand is mid-strong and negative at -0.205.


The next weekly report will be published on Wednesday, August 6^th and will refer to the week ending on August 1^st.


Oil Related News for the Week


Here are several news items that could affect oil prices:


Monday – U.S Factory Orders: This report shows the developments in U.S. factory orders of manufactured durable goods in July; in the latest report factory orders fell by 0.5%;


Monday – EU Retail Sales: This monthly report will refer to June 2014. In the recent report, the volume of retail trade remained unchanged during May;


In conclusion…


The recent drop in oil prices may change course if the demand for oil in the U.S keeps picking up and stockpiles continue to contract. Finally, the tensions between Russia and the West could keep oil prices elevated in the short term.